Ask property agents what the forecourt property market is like at the moment and you’ll get a mixed response. Anything from "fairly slow" to "relatively buoyant".

Lambert Smith Hampton’s associate director, (motor trade and roadside), John Coulling, is an agent who’s saying the market’s "relatively buoyant compared to other market sectors". But he adds a caveat: "The tightening of the lending criteria of the major banks has had a calming effect on bids and therefore values realised. In a number of cases, I’ve re-experienced the situation of a number of years ago where a vendor’s aspirations on value are adrift of bidders by some 10-15%! Conversely, I’ve seen deals done at healthy prices. A case in point is a cleared development site in the North West which I marketed last year on a selective basis, which went for petrol filling station/convenience store use for well over £500,000."

Christie & Co’s director of corporate retail, Allen Shepherd, believes the market is "fairly slow". He explains: "People can’t get finance because the banks are reluctant to lend."

However, he adds: "We’ve done a ton of valuation work for banks a lot of it for refinancing purposes because banks will lend on existing businesses.

"Fuel volumes have definitely fallen away. There are less people in work, people are making fewer journeys plus cars are more fuel-efficient. This means there are a lot of people looking at ways to increase their turnover and that’s through their shop."

David Collins, partner at Adlers chartered surveyors, describes the past year as "difficult" but says compared to other sectors of the property market, forecourts have held up reasonably well. There has been a shortage of quality filling stations on the market so values have not fallen to the extent that would have been expected with a reduction in fuel volumes and sales due to economic conditions. We sold several petrol filling stations last year and have achieved very satisfactory prices.

"Up until the banking crisis, it was very often the case that sites were worth considerably more for alternative use. This has now reversed and more often the existing filling station use value will far exceed alternative use value."

Peter Nicholas, senior associate (motor trade and roadside) at Rapleys LLP, says another problem is that the banks are much more nervous about environmental issues: "Before the credit crunch they took the view that with a petrol station there would always be some contamination but not now."

Interestingly, Shepherd says he’s seen a number of ex-forecourt owners coming back into the business. It seems they’ve had money in the bank which was not earning much in the way of interest so they’ve decided to invest it in a new forecourt."

The banks’ lack of lending is a known obstacle in the property market but what is unknown is what’s going to happen with the oil companies’ disposal of sites. Total and Murco’s networks are up for sale and Esso and BP also disposing of sites, all of which will undoubtedly affect the market. The property experts don’t expect the large oil company lots to be broken up. "Total will be sold as a single entity although the buyer will most likely consolidate the network and dispose of surplus sites that do not fit its operating model," says Adam Chapman, principal surveyor at GVA Grimley.

Perhaps the biggest worry is Tesco’s supposed intention to signficantly grow its network. According to national press reports, Tesco (through its investment in road fuel supplier Greenergy) has shown interest in over 1,000 forecourts currently up for sale by Total and Murco.

Coulling warns: "If Greenergy/Tesco are successful with their bid then there could be major repercussions on businesses nearby if Tesco develops c-stores on some of the newly-acquired sites."

He therefore reckons that if you are in the market to buy, it may be worthwhile holding off to see what happens with the sale of the Total and Murco retail networks and whether the new purchaser will be selling off under-performing sites. He adds: "In the event that a purchaser cannot be found for the entire networks, the only option left for the owners may be to offer the sites to a wider market by breaking up the networks into regional/smaller portfolios."

Sell, sell, sell?

If you are thinking of selling, Coulling reckons it may be prudent to put your site on the market early this year through a good agent. "If you delay, the market may be ’flooded’ later in the year if the purchasers of Total and Murco seek to rationalise their newly-acquired networks and sell off under-performing sites and sites in non-strategic locations."

But Chapman adds: "While there will be more disposals this year, and therefore an argument to sell early, retailers selling now must accept that purchasers will question their reasons for selling is it a distress sale? Is there a bank in the background? Are they finding market conditions too tough? At the moment purchasers are extremely predatory and looking for bargains. It’s definitely not a good time to sell without an experienced agent providing sound advice."

And for would-be sellers waiting for prices to rise again, Christie’s Shepherd reckons this is as good as it’s going to get: "People who are waiting for the dizzy prices to return will have a long wait because the market is not ’bad’ now, it’s just normal. That false market has gone. If you missed the boom then that’s it."

The fuel agreement can be key to a forecourt’s success. Shepherd reckons that if you are selling and your fuel agreement is coming to an end, you shouldn’t sign a new one because the new person might not want it. And if you’re buying he says you should look very carefully at the fuel supply agreement and length of time left.

"That agreement might be favourable now but it might be a different case at renewal," he says.

He warns buyers to be careful: "Some oil companies are quite cute in how they dress up their disposals. They sell sites at very favourable prices with poor fuel agreements so what you save on the site you lose on the agreement."

Meanwhile, Shepherd advises sellers not to bother spending a penny on their site to improve it as buyers always like to think they can do better: "You need to make it look okay but don’t go to huge expense," he says.

And Rapleys’ Nicholas adds: "People looking to sell should get their ducks in a row in terms of trading history, site information and environmental reports."

Coulling says well-located sites with good fuel and shop sales revenues and particularly, where there is potential for improvement by extending the shop and/or the introduction of ancillary income streams, will still be in demand this year. But Shepherd adds that very few good sites like this are coming to market because people are still making good money on them.

"Good, well-located sites are still very saleable but poor quality sites will be difficult to sell," says Collins. "In the latter case, it will be far harder to obtain bank funding in a climate where banks are being extremely selective. Bank funding has been a critical factor and if anything, the availability of bank funding deteriorated during the course of last year. New entrants into the market and operators in smaller businesses will find it extremely difficult to obtain funding on satisfactory terms for new acquisitions.While the banks are now more stringent, well-established operators are still able to obtain funding."


Chapman describes the recent rates reductions win by RMI Petrol as a "small godsend" but says lower rates are not going to change the world because "they are not the primary reason the market is difficult, and may simply delay the inevitable in some instances".

Coulling says the recently-revised valuation basis which will be adopted by the VOA (Valuation Office Agency) for the 2010 business rates revaluation will assist in mitigating the increased rates liability.

"If there are falls in trade at any point up until April 2015 there will only be grounds for appeal if there are physical changes to a particular locality, which in turn affect general sales levels. These may include: road closure, new competition opening, roadworks and redevelopment close by. Petrol operators should, in consultation with a rating surveyor, investigate appealing their current assessments where the increase at the revaluation is relatively high (by reference to trading levels) and look at changes within the locality of each site as an additional opportunity to appeal."

Property value indices 2011

Last year saw values stabilise following the declines of 2008/09 and activity started to return to the market once again, albeit at a considerably slower pace. According to the indices, values for the average ’mid range’ dealer site (trading at 2.5mlpa and shop sales of £400,000) declined by only 3% in 2010, in comparison to the 28% decline in 2009. Values were propped up by the trading performance with a rise in shop sales of around 3%. Average ’mid range’ fuel sales declined by around 4% over this period, but the impact on value was not substantial given the lower margins.

For better quality dealer sites (’top-end indices’) it was a similar picture with only a nominal downward adjustment of 1%, with the average ’top-end’ dealer site averaging 4,600,000mlpa and shop sales of £850,000. Once again, trading for better quality sites supported values and, while fuel sales fell back, shop sales grew by 3%.

It should, however, be stressed that these trading figures are based upon the average ’mid-range’ and ’top-end’ sites. Indeed, where retailers have been able to invest in a shop and grow sales, the enhancement in value tends to be significant.

The principal reason for the restriction on value is the continuing difficulty in securing funding, which has reduced the pool of prospective purchasers that are able to complete a transaction. Buyers are having to put at least 30% equity into a deal and funding isn’t freely available and can be expensive. A ’top-end’ site will still generate a good level of interest, but ’mid-range’ sites are proving harder to sell, which is demonstrated by the fact that we estimate there to be approximately 100 ’mid-range’ type sites currently on the market.

The value for the average ’top-end’ site has now fallen by 18% since the 2007 peak, whereas ’mid-range’ sites have declined by nearly 40%.

While this may make depressing reading for retailers, it should be acknowledged that the average ’mid-range’ site is still worth nearly twice as much as it was in 2000. It is not therefore all doom and gloom for retailers who are considering their exit strategies. For this reason, activity is returning to the market and we are seeing an increased number of transactions throughout the UK.

The major operators remain the most active, which includes the top 10 independent retailers, as well as the supermarket/c-store retailers, and new players in this latter category are starting to make their presence felt. We have also seen one or two of the oil companies making strategic acquisitions.

Interestingly, demand for leasehold sites has increased throughout 2010 and, as a consequence, rental values have remained firm.

Leasehold demand is a market shift given that the sector has traditionally been very freehold-focused. The arrival of new operators (primarily superstore and c-store retailers) which are familiar with taking leases, as well as restrictions on funding for freehold acquisitions, have meant that parties have had to consider alternative options to secure sites. Furthermore, the rise in property investment values means that the letting of a site to an operator can create a very marketable investment product and is a genuine ’value-adding’ exit strategy for a retailer.

The table below shows that there has been a 25%-plus increase in value of a prime petrol station investment (ie freehold site let to a major operator), primarily because of the low interest rates, which are pushing investors to seek greater returns from their money and not just leave it in the bank.

Looking forward, 2011 is likely to see even greater levels of market activity as the major oil companies restructure their retail networks.

We estimate that in excess of 1,000 oil company sites will change hands in the next two years, albeit tied up in large corporate deals together with distribution and refinery businesses.

For this reason, we do not expect there to be a flooding effect of the market and values are likely to remain fairly resilient.

Operators will, however, need to keep up investment in their sites in order to protect values. Indeed, if investment is made in the right areas, there is scope to significantly enhance values above sector average, even in the current subdued market. Operators still get very excited by ’diamond’ site opportunities!

Indices Explained

l Average ’mid-range’ site value value of the average independent dealer site (in terms of trading performance)

l Average ’top-end’ site value value of the average top-quarter of independent sites (in terms of trading performance)

l No two forecourts’ trading performance is the same, making it virtually impossible to compare one transaction with another.

l Barber Wadlow, working with Catalist Experian, has devised an indices based upon opinions of value for the average ’mid-range’ independent dealer site, as well as the average ’top-end’ dealer site since 2000. To overcome a number of sector valuation issues, Barber Wadlow has based value on a freehold site that is unencumbered, free from contamination and fully operational with no investment requirement. This research should be considered as a guide only to market conditions, but given the dearth of similar research in the sector, should be of use to operators.

Recent sales

l Eyemouth Filling Station, Eyemouth, Scottish Borders this Shell/Mace site sold to a multiple retail operator for well in excess of £1m.

l Sutton Road Service Station, Hull, East Yorkshire this Jet-branded site was sold off an asking price of £650,000 to an experienced operator.

l Mister C Petrol Station, Haslingden, Lancashire sold to a first-time operator off an asking price of £630,000.

l Helmington Row Filling Station, Crook, Co Durham this site required investment. It was bought by an experienced local operator off an asking price of £360,000.

Source: Christie & Co

The environment

In the current economic climate any factor that could significantly impact on the success of a new filling station acquisition or redevelopment needs to be carefully considered. So says James Edley, director at Subadra Consulting, a specialist environmental consultant to the petroleum sector.

"Depending upon your site’s sensitivity, remedial costs for contamination caused by fuel even if historical and inherited from a previous owner can quickly add up to a serious problem. It is therefore essential that environmental liabilities are quantified and factored into the equation," he explains.

"An environmental investigation may seem like an unneccesary expense at the point of property transfer, but the cost of the investigation can often be recouped when negotiating property value, funding arrangements, insurance and the like. Moreover, it can certainly prove money well spent if it uncovers contamination liabilities that could extend to millions of pounds in remedial costs, regulatory fines and civil compensation claims."

Edley says environmental regulators (the Environment Agency and local authorities) are now effectively demanding assessment of sites via the planning process. "Regardless of the location, planning conditions requiring an environmental desk study, site investigation, risk assessment etc, are typically being inserted into any filling station redevelopment from complete rebuilds to shop extensions. As anyone who has experienced the planning process will no doubt confirm, no site or planning authority is the same. Successful negotiation and discharge of such conditions requires a flexible appraisal of each situation."